The Instigator
brian_eggleston
Pro (for)
Losing
0 Points
The Contender
Sieben
Con (against)
Winning
18 Points

It's time to crackdown on bent bankers, felonious financiers and shady stockbrokers

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Post Voting Period
The voting period for this debate has ended.
after 4 votes the winner is...
Sieben
Voting Style: Open Point System: 7 Point
Started: 9/10/2010 Category: Politics
Updated: 6 years ago Status: Post Voting Period
Viewed: 2,256 times Debate No: 13119
Debate Rounds (2)
Comments (11)
Votes (4)

 

brian_eggleston

Pro

When the international banking system collapsed in disarray causing a global recession a couple of years ago, the greedy and incompetent investment bankers who caused the meltdown prostrated themselves at the doors of government and grovelled for taxpayer's cash to bail them out of the terrible mess they had created for themselves – and, as it turned out, for everybody else.

Unfortunately, politicians like President George W. Bush, who had many political donors and backers in the finance industry, caved into their pleas and lavished trillions of dollars of the public's hard-earned money on his investment banking buddies - who then picked themselves up, dusted themselves down and laughed all the way back to their banks.

There were, however, conditions attached to the refinancing of the banking industry: those being that the banks should use the money to recapitalise themselves and to lend money to small- and medium-sized businesses but not, not under any circumstances whatsoever, to use it to pay themselves massive bonuses.

So, after millions of people have been made redundant as a result of the economic crisis and face another winter wondering how they are going to feed their families and pay the heating bills, have the bankers kept their side of the bargain? Well, let's see:

Capitalisation: DOWN
http://www.cityam.com...

Lending to business: DOWN
http://www.globalresearch.ca...
http://realbusiness.co.uk...

Bonuses: UP
http://www.guardian.co.uk...

The banks have been given the chance to show self-restraint in bonus payments and thus avoid calls for tighter regulations but their greed is so insatiable and ingrained that they couldn't resist the temptation to lavish obscene amounts of cash on themselves.

Meanwhile, the taxpayer remains highly vulnerable. If the banking industry collapses again they will have to write off the trillions they are owed by the banks and, because most of the public's money is held in bank accounts, spend further trillions on bailing them out again.

Or it may be the case the governments will simply not have the money to bail them out again. If this is the case there will be chaos. People will not be able to withdraw money from banks or use their debit and credit cards and most people with mortgages would be made homeless as the banks' administrators called those loans – and even those few that had enough money in cash to pay off the remainder of their mortgage in one lump sum at short notice would struggle because their cash deposits in the banks will have been wiped out.

We can't let this happen and, no matter how loudly the banking industry protests, now is time to crackdown on the finance industry and introduce regulations to ensure the endemic greed and incompetence of investment bankers cannot cause another economic collapse.

That means not a penny in bonuses unless the banks meet the government's and the regulatory authorities' lending and capitalisation targets in full – and that should apply to all financial institutions and not just banks that took government loans, because the whole industry has benefited from quantitative easing and the other government interventions that increased liquidity in the markets.

Thank you.
Sieben

Con

== Pro Inherency ==

1) Capitalization down

Unless I'm misunderstanding it, capitalization is merely the monetary size of a firm (1). So if its shrinking, that's probably a good thing since evil bankers are going out of business.

2) Lending to Business down

Lending is a core part of modern economies. But healthy lending involves one party agreeing to defer consumption. So if I lend you $500, I'm not spending it till later. I use fewer resources, so that you can use more. This coordination is essential to market stability.

Contrast this to fractional reserve banking, of which virtually all the world engages. A bank loans on top of a fractional reserve base, allowing loans to exceed deposits (savings). This creates new money, which bids up prices in the market. It has three effects:

A) The new loans bid up prices asymmetrically because they are spent in specific markets. This price distortion makes it impossible to track whether an increase in price is due to real market forces (supply/demand) or simply the result of new money entering the system. It sends a false signal of higher profits in some markets, causing investors to rush in. The housing market is a good example of this.

The result is a boom of investments that can never be seen to completion because the demand was never there. It doesn't matter if firms were engaged in speculative mortgage leveraging. Unprofitable projects are revealed in a "bust" when the source of credit is cut off or cannot keep up with inflation.

B) The rise in prices necessitates more borrowing to keep up with inflation. This is why our firms (2) and consumers (3) are sickly dependent on credit they can't hope to pay back. With a central bank around, borrowing is the only way to maintain purchasing power.

C) Inflation is a wealth transfer between holders of old money and receivers of new money. People who are on fixed salaries or living paycheck to paycheck cannot insulate themselves from inflation. In short, the lower and middle class shoulder the burden.

3) Regulations

Brian wants new regulations on the banking sector, particularly suspending the payment of bonuses if banks don't meet certain targets.

A) His article mentions that many UK banks are paying lavish bonuses. A particularly exorbitant company, Barclays, paid a �14.8mn bonus to its director (4). While that would certainly make my day, the general effects are pretty insignificant. Distributed among the UK population, it would amount to only a quarter of a pound.

So the people who caused the crisis are rolling in dough. It's morally outrageous but doesn't matter much in the grand scheme of things. Regardless, both the UK and US governments have actually passed very high taxes on bonuses already (5)(6). Clearly this has been unproductive, and more drastic measures are in order!

B) But what about other regulations? Shouldn't some financial schemes be outlawed? If you pass a law against a particular activity, you don't resolve the underlying issues. You only ensure that we'll never have a bust from that *particular* problem again. Bubbles will simply appear elsewhere by a different route because the fundamentals are the same: Lending in excess of deposits. Regulations probably just exacerbate everything because banks and financial groups will use increasingly awkward strategies to get to market.

== Con Counterplan ==

I want two laws repealed. First, the capital gains tax, which is paid upon trading commodities including gold. Second, the legal tender laws granting monetary monopoly privileges to central banks. This is a de-regulation, and therefore fulfills my burden of clash.

Commodity Currency:

Gold, silver, sea-shells... Whatever people choose. Money originated as the "most saleable" or "most liquid" good. Something you could always know other people would accept. It also typically has other qualities, such as a good stock of value and divisibility. Commodity currency tends to have a relatively stable supply, although many currencies expand at stable rates (6).

Central banks can run the printing press all day because citizens have no alternative to paper money. With the elimination of the two laws above, the threat of competition is introduced, and the behavior of banks becomes very restricted. If consumers decide that gold checks are better to use as money, the value of central bank notes will plummet, pushing irresponsible parties into bankruptcy.

This deregulation creates an incentive for central banks and the financial industry to stop manipulating fiat money. If the central banks fail new free banks take their place. A good example is Bit-Coin (7), who could easily expand capacity to millions of consumers. The inflation tax on the poor and inflationary boom/bust cycles would disappear.

Whether the central banks survive, we are left with stable currency and a responsible financial system. Right now we live in a two-tiered system. The wealthy keep all their assets in commodities, stock, and real estate. The poor require short term liquidity and are forced to use constantly depreciating money. Its time to break the monopoly privileges of central banks and impose the only real check on their behavior: competition.

(1) http://en.wikipedia.org...
(2) http://www.clevelandfed.org...
(3) http://www.federalreserve.gov...
(4) http://www.guardian.co.uk...
(6) http://www.guardian.co.uk...
(7) http://en.wikipedia.org...
(8) http://p2pfoundation.net...
Debate Round No. 1
brian_eggleston

Pro

With many thanks to Sieben for accepting this challenge, I should like to respond to his comments as follows:

1 – Capitalisation.

The banks have been asked to put a certain amount of money in reserve – to capitalise themselves – in order cover any possible future losses so they don't have to turn to the taxpayer in times of need. The amount they set aside does not reflect the banks' performance – even highly profitable banks have chosen not to capitalise themselves but to use their profits to pay their traders and senior executives massive bonuses instead.

2 – Lending to business.

Banks make money by lending money at a higher rate of interest than they borrowed it at – fractional reserve banking is part of that and there is no real problem with that concept.

However, with interest rates at a record low and the perceived risk of insolvency so high, the banks have decided that lending to smaller companies is not the best use of their capital resources. They would rather invest in other areas of finance such as mergers and acquisitions, futures, commodity trading, foreign exchange, asset management, derivative trading, equities and so on where massive profits (and losses) can be made quickly and easily – in other words they are more interested in making a quick buck than in long-term gains – and that's what caused the recent financial crisis.

The lack borrowing facilities means that smaller companies do not have access to the finance they need to either solve short-term cash flow problems or to expand their businesses. This results in job losses or missed opportunities to create new jobs, which is bad for the economy and has a negative impact on society as a whole.

3 – Regulations.

It is true that in the US and the UK some minor taxes have been proposed – and have met with fierce opposition from bankers and right-wing politicians, but no major tax on profits or bonuses has yet been implemented.

Counter Plan.

The use of commodities such as gold as alternatives to cash may indeed put pressure on the retail banks to get their acts together and offer their customers a better service. However, the economic crash was caused by the banks' investment banking divisions. The problem is that if the banks' corporate investments collapse and the bank goes bust the public's deposits will be swallowed up.

An idea may be to separate the banks into corporate and retail entities to protect the public's deposits but a collapse would still impact on ordinary people whose private pensions are invested through the failed bank.

For this reason I reassert that no bonuses or dividends should be paid unless the banks meet the government's and the regulatory authorities' lending and capitalisation targets in full.

Thank you.
Sieben

Con

I thank Brian for his courtesy and forthrightness in this debate. It's been enjoyable.

== Pro Inherency ==

1) Capitalization down

Brian's main argument here is that the banks are behaving recklessly which might result in more financial disasters and bailouts. We basically both agree on this point; the conflict is over what should be done about it.

2) Lending to Business Down

He doesn't think fractional reserve banking is a problem, but doesn't explain what is wrong with my advocacy of non-fractional reserve banking.

Non-fractional reserve banking involves the lender deferring resource-use till later so the borrower can use resources now. This deference is both symbolic (in terms of money), and real (in terms of resources). Fractional reserve banking is only symbolic, since new money is created without a proportionate trade in resource-use.

Brian also did not address the effects of fractional reserve banking, which are summarized below:

A) Asymmetric price increases distort rational economic calculation. The new money creates higher prices and therefore higher apparent profits in some industries, causing them to leech capital away from other sectors in the economy. When the market becomes saturated with credit, market prices start to readjust to reveal and "bust" the malinvestments made during the "boom" period.

B) Extension of credit dilutes the purchasing power of all holders of money. As this continues, all market participants must borrow to keep up with rising prices. The result is mass indebtedness.

C) Inflation effects the poor disproportionately since they are on fixed incomes and cannot invest in non-depreciating markets. Its basically a tax that only poor people pay. I'm opposed to taxing the poor.

3) Regulations

Brian asserts that the tax proposals have been minor. My source showed a 50% tax on bonuses, which is pretty significant. Regardless, his plan to cap bonuses and dividends does not solve the fundamental problems of the system. It will still be the same fractional reserve monopoly banking system run by the same group of good ol' boys.

The basic thing Brian wants out of financial groups is more lending to smaller companies. Under non-fractional reserve banking, if small businesses profitable, they will be able to get loans. There will be less reckless gambling by financial groups because you can't print up a bunch of gold.

== Con Counterplan ==

Brian points out that the introduction of commodity currency might cause existing financial systems to collapse. First, the anticipation of this will lead our banks to clean up their acts BECAUSE they don't want to go bankrupt. Second, even if they do all fail, the transition to commodity currency could be painful at first, but very beneficial in the long run. The plan to keep existing banks in business by any means necessary simply imposes the costs of their greed and ineptness on the general public.

At any rate, we both agree that the competition of commodity currency would stimulate the financial market. I extend that commodity currency would be better for the general population because it is a stable stock of value and stabilizes the economy by eliminating fractional reserve banking.

== Summary ==

Brian and I both agree we need to crack down on bankers. He wants to impose a new law that will limit their ability to pay themselves, but still keep the existing infrastructure in place. I want to get rid of two laws that will revolutionize the whole financial sector and impose real accountability on banks for the benefit of consumers. END THE FED http://tinyurl.com...
Debate Round No. 2
11 comments have been posted on this debate. Showing 1 through 10 records.
Posted by Rob1Billion 6 years ago
Rob1Billion
Without capitalism, these problematic institutions would have no reason to exist. Most people talk about how to regulate them into submission (creating a new head on the monster - gov't) but I believe we should just slay the monster altogether.
Posted by Sieben 6 years ago
Sieben
Hey. NO ONE said capitalism or free markets :P
Posted by Rob1Billion 6 years ago
Rob1Billion
just another reason why capitalism has to go
Posted by brian_eggleston 6 years ago
brian_eggleston
Thanks for accepting - and take your time - no rush!
Posted by Sieben 6 years ago
Sieben
I've started typing a response. I'll probably post it tomorrow morning sometime. Sorry for the wait.
Posted by brian_eggleston 6 years ago
brian_eggleston
I made it general on purpose because this is an international site and, anyway, the financial markets operate on a global basis.

I am arguing in principle but your arguments can be supported by real policies or experiences in the US, the UK or elsewhere.

I have the BOP and I don't normally bring up new arguments in the second round - just address the issues my opponent raises.
Posted by Sieben 6 years ago
Sieben
Sorry, is this debate about the UK or the USA or both?
Posted by Sieben 6 years ago
Sieben
Okay.

As Con, I have the last word. I noticed that a lot of people on DDO bring up new arguments in the last round, and that's really unfair because you can't respond to them. If it were 3 rounds, I would promise not to bring up any new arguments, but since it is two, I can only do my best. There may not be enough time for arguments to mature.

If you feel like I've abused my last word, please post a final re in the comments section. I think the person with BOP needs the last word. I only have the burden of clash :)
Posted by brian_eggleston 6 years ago
brian_eggleston
I always do 2 rounds - I get bored after that and so do the voters!

I am in favour of increased regulation and have added a final paragraph to clarify this.
Posted by Sieben 6 years ago
Sieben
Oh but its only two rounds... can we make it 3 rounds? Idc about char limit.
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